Schmidt and Rasmussen looked at the companies on the S&P 1500 in 2007, using a sample the 639 of them that required annual election of all directors. They found that while shareholder votes and institutional investor funds punished audit committee ineffectiveness, none of the companies in the sample saw their external auditors disclose audit committee material weaknesses.

Casting a wider net, the researchers looked at the more than 2,000 auditor internal-control opinions issued and available in Audit Analytics from 2004 to 2010, finding only 42 such disclosures. Of the six of these which occurred during the sample period, one disclosure identified a one-member audit committee as a material weakness and two others cite lack of audit committee financial expertise coupled with complex accounting.

"We find that auditors rarely disclose ACI (audit committee ineffectiveness) with an AC (audit committee)-related material weakness, which suggests that auditors are reluctantly to publicly identify ACI, perhaps due to fear of not being reappointed by the AC," they write. "Accounting and internal control problems must be extremely severe for an auditor to issue a material weakness" based on audit committee shortcomings.

Shareholders, on the other hand, withhold 7.8% more votes from ineffective audit committee members, directing negative votes especially against all members of committees with at least some ineffective members. "Board turnover is greater for all audit committee members at companies with at least one ineffective audit committee member compared to members of fully effective audit committees," the paper states.

In addition, institutional investors are "more likely to reduce ownership positions in companies with increasing ACI," although "the economic significance of the reduction is small (3.5%)."